Reduction Certificate

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DEFINITION of 'Reduction Certificate'

A document signed by a lender stating the outstanding amount on a mortgage loan. Properties that are encumbered by mortgages are frequently sold before the debt is satisfied. The sale of the mortgaged property most often involves a cash sale where the existing mortgage is paid off. In some cases, however, the buyer may assume the existing loan as part of the purchase price. In this case, the parties obtain a reduction certificate from the lender specifying the exact amount of money that is due on the loan.

A reduction certificate is also known as a "payoff statement".

INVESTOPEDIA EXPLAINS 'Reduction Certificate'

The option for a buyer to assume an existing mortgage is appealing during times of high interest rates. By assuming the existing mortgage, the buyer may be able to secure the lower interest rate associated with the loan, which may have been originated during a period of lower interest rates. The seller would need a release from the lender discharging him or her of any liability on the debt.